Economic interventionism
Encyclopedia
Economic interventionism is an action taken by a government in a market economy
or market-oriented mixed economy
, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy
. Economic intervention can be aimed at a variety of political or economic objectives, such as promoting economic growth, increasing employment, raising wages, raising or reducing prices, promoting equality, managing the money supply and interest rates, increasing profits, or addressing market failure
s. The term economic intervention assumes the state and economy are inherently separate from each other, and therefore applies to capitalist market or mixed economies where government action would make an "intervention" (although this does not apply to state-owned enterprises that operate in the market).
Economic planning in market economies is sometimes considered to be a form of intervention when it intervenes in the setting of prices and the distribution of goods determined by the market.
Economic planning tends to be associated with the political left
, while economic interventionism is often associated with centrism
, which believes that certain market outcomes are undesirable or ineffective and ought to be mitigated. Economic interventionism and planning are sometimes practiced by national conservative
, fascist
, economic nationalist
and right-wing parties with the thinking that the free market
can damage national traditions, social order, or the authority of the state itself.
es, targeted tax credit
s, minimum wage
legislation, union shop
rules, contracting preferences, direct subsidies to certain classes of producers, price support
s, price caps, production quota
s, import quotas, and tariff
s.
Demand management
and Keynesian economics
(helicopter money) are sometimes cited as mild forms of economic planning, designed to overcome cyclical instability inherent in market economies, or to make market economies function properly in a desired fashion.
refers to planned economic activity in production. Planned economic activity may be direct (directive planning), or indirect as in the case of indicative planning
. An economic system that is characterized by the primacy of economic planning over the market is referred to as a Planned economy
, where resource allocation and the quantity produced is allocated by non-market means, usually through state-led planning.
Government regulation can also be a type of intervention when it inhibits, corrects or distorts the market mechanism in setting the price of a good or service.
s. It is difficult to suggest precisely what effects it will have on a given society.
Market economy
A market economy is an economy in which the prices of goods and services are determined in a free price system. This is often contrasted with a state-directed or planned economy. Market economies can range from hypothetically pure laissez-faire variants to an assortment of real-world mixed...
or market-oriented mixed economy
Mixed economy
Mixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
, beyond the basic regulation of fraud and enforcement of contracts, in an effort to affect its own economy
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
. Economic intervention can be aimed at a variety of political or economic objectives, such as promoting economic growth, increasing employment, raising wages, raising or reducing prices, promoting equality, managing the money supply and interest rates, increasing profits, or addressing market failure
Market failure
Market failure is a concept within economic theory wherein the allocation of goods and services by a free market is not efficient. That is, there exists another conceivable outcome where a market participant may be made better-off without making someone else worse-off...
s. The term economic intervention assumes the state and economy are inherently separate from each other, and therefore applies to capitalist market or mixed economies where government action would make an "intervention" (although this does not apply to state-owned enterprises that operate in the market).
Economic planning in market economies is sometimes considered to be a form of intervention when it intervenes in the setting of prices and the distribution of goods determined by the market.
Economic planning tends to be associated with the political left
Left-wing politics
In politics, Left, left-wing and leftist generally refer to support for social change to create a more egalitarian society...
, while economic interventionism is often associated with centrism
Centrism
In politics, centrism is the ideal or the practice of promoting policies that lie different from the standard political left and political right. Most commonly, this is visualized as part of the one-dimensional political spectrum of left-right politics, with centrism landing in the middle between...
, which believes that certain market outcomes are undesirable or ineffective and ought to be mitigated. Economic interventionism and planning are sometimes practiced by national conservative
National conservatism
National conservatism is a political term used primarily in Europe to describe a variant of conservatism which concentrates more on national interests than standard conservatism as well as upholding cultural and ethnic identity, while not being outspokenly nationalist or supporting a far-right...
, fascist
Corporatism
Corporatism, also known as corporativism, is a system of economic, political, or social organization that involves association of the people of society into corporate groups, such as agricultural, business, ethnic, labor, military, patronage, or scientific affiliations, on the basis of common...
, economic nationalist
Economic nationalism
Economic nationalism is a term used to describe policies which emphasize domestic control of the economy, labor and capital formation, even if this requires the imposition of tariffs and other restrictions on the movement of labor, goods and capital. It opposes globalization in many cases, or at...
and right-wing parties with the thinking that the free market
Free market
A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...
can damage national traditions, social order, or the authority of the state itself.
Types of interventions
Economic interventions common in contemporary governments include targeted taxTax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
es, targeted tax credit
Tax credit
A tax credit is a sum deducted from the total amount a taxpayer owes to the state. A tax credit may be granted for various types of taxes, such as an income tax, property tax, or VAT. It may be granted in recognition of taxes already paid, as a subsidy, or to encourage investment or other behaviors...
s, minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
legislation, union shop
Union shop
A union shop is a form of a union security clause under which the employer agrees to hire either labor union members or nonmembers but all non-union employees must become union members within a specified period of time or lose their jobs...
rules, contracting preferences, direct subsidies to certain classes of producers, price support
Price support
In economics, a price support may be either a subsidy or a price control, both with the intended effect of keeping the market price of a good higher than the competitive equilibrium level....
s, price caps, production quota
Production quota
A production quota is a goal for the production of a good. It is typically set by a government or an organization, and can be applied to an individual worker, firm, industry or country. Quotas can be set high to encourage production, or can be used to limit production to control the supply of goods...
s, import quotas, and tariff
Tariff
A tariff may be either tax on imports or exports , or a list or schedule of prices for such things as rail service, bus routes, and electrical usage ....
s.
Demand management
Demand management
Demand management is a planning methodology used to manage forecasted demand.-Demand management in economics:In economics, demand management is the art or science of controlling economic demand to avoid a recession...
and Keynesian economics
Keynesian economics
Keynesian economics is a school of macroeconomic thought based on the ideas of 20th-century English economist John Maynard Keynes.Keynesian economics argues that private sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the...
(helicopter money) are sometimes cited as mild forms of economic planning, designed to overcome cyclical instability inherent in market economies, or to make market economies function properly in a desired fashion.
Related concepts
Economic planningEconomic planning
Economic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
refers to planned economic activity in production. Planned economic activity may be direct (directive planning), or indirect as in the case of indicative planning
Indicative planning
Indicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...
. An economic system that is characterized by the primacy of economic planning over the market is referred to as a Planned economy
Planned economy
A planned economy is an economic system in which decisions regarding production and investment are embodied in a plan formulated by a central authority, usually by a government agency...
, where resource allocation and the quantity produced is allocated by non-market means, usually through state-led planning.
Government regulation can also be a type of intervention when it inhibits, corrects or distorts the market mechanism in setting the price of a good or service.
Effects
Advocates of free market or laissez-faire economics tend to see government intervention in the economy as harmful, due the fallacy of central planning, the law of unintended consequences, and other considerations. Economically left-wing entities can see economic interventionism as a way of ensuring that firms adhere to the social boundaries of that country and that they often outweigh potential negative unintended consequenceUnintended consequence
In the social sciences, unintended consequences are outcomes that are not the outcomes intended by a purposeful action. The concept has long existed but was named and popularised in the 20th century by American sociologist Robert K. Merton...
s. It is difficult to suggest precisely what effects it will have on a given society.
See also
- Mixed EconomyMixed economyMixed economy is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. Most mixed economies can be described as market economies with strong regulatory oversight, in addition to having a variety...
- Crowding outCrowding out (economics)In economics, crowding out occurs when Expansionary Fiscal Policy causes interest rates to rise, thereby reducing private spending. That means increase in government spending crowds out investment spending....
- DirigismeDirigismeDirigisme is an economy in which the government exerts strong directive influence. While the term has occasionally been applied to centrally planned economies, where the state effectively controls both production and allocation of resources , it originally had neither of these meanings when...
- RegulationRegulationRegulation is administrative legislation that constitutes or constrains rights and allocates responsibilities. It can be distinguished from primary legislation on the one hand and judge-made law on the other...
- Economic planningEconomic planningEconomic planning refers to any directing or planning of economic activity outside the mechanisisms of the market, in an attempt to achieve specific economic or social outcomes. Planning is an economic mechanism for resource allocation and decision-making in contrast with the market mechanism...
- Indicative PlanningIndicative planningIndicative planning is a form of central economic planning implemented by a state in an effort to solve the problem of imperfect information in economies and thus increase economic performance...